Banks exiting TARP
by Linda Beale (cross posted from ataxingmatter)
Banks exiting TARP
Citibank has confirmed its plans to pay back the bailout funds directly provided to it. See NY Times. Of course, the fact that banks are paying back direct bailout funds does not mean that there is no further bank bailout going on. The government now stands as guarantor, an assurance that has provided a significant cost-of-funds advantage to big banks. One has to wonder whehter there will ever be a complete reckoning regarding the total amount of the assistance that big banks and insurers have received. It is something that is terribly important, if we want to make wise decisions on financial system reforms. One suspects that whatever bill passes the Congress will have a number of poor provisions, given the influence of bank lobbyists and the vulnerability of Congress to that influence. Without public pressure expressing the rightious rage at bank’s profiting from the bailout without corresponding assistant to Main Street and bankers’ profiting personally while middle America hemorhages jobs, we’ll continue without the significant changes that are needed.
Not surprisingly, the banks that exit the US bailout program are going to continue to benefit from the “special” rules written to override the regular rules preventing loss trafficking. Last week, Treasury made clear that government sales of stakes in banks won’t be taken into account in determining whether there has been a sufficient ownership change to invoke the rules under section 382 et seq that limit loss use to a formula intended to keep losses used at pre-ownership change use rate.
And lifted from comments by Rdan.
Ken Houghton says:
I don’t wonder. The word is already out: it was profitable, no matter what the reality is. (To paraphrase a combination of John Anderson in 1980 and Lloyd Bentsen in 1984, let me borrow at -0,25%, loan at 30%, and write $300 billion in hot checks, and I can balance the budget too.)
Linda Beale responds:
Ken is certainly right–the research so far on cost-of-funds analysis for Big Banks aided by TARP suggests that as much as 48% of the Big Banks’ current profits are due to the cost-of-funds advantage from the government guarantee. They have soaked up corporate welfare and loved it, while still fighting with every breath any possibility of a “mortgage cramdown” which would permit homeowners to reduce the principal amount of their home mortgages in bankruptcy. Why the shoveback against the cramdown? Because it would require them to recognize the real losses now, rather than at their timing. And would lower their market cap value, making it harder for them to continue merging and growing ever bigger and even more “too big to fail.”
Linda:
I am going to assume the availability of low interest funding from the government and the government guaranteeing their indebtness comes from Sachs, etc. becoming bank holding companies? Any chance, they will come under more scrutiny as a result of their conversion?
As I have stated early with the proposed House Bill:
– The same as the striking down of state Usury Laws by SCOTUS in Marquette vs First Omaha and the establishment of South Dakota as the Credit Card capital of the world; as it is written, this House Bill goes one step further in eliminating any state regulation of National Banks beyond Federal Laws. States will no longer be able to have tougher laws than the Federal law to control the acts of banks. It opens up the door for TBTF to proliferate even more. Some disparities . . . 4 banks (Citi, WF, BofA, Chase) control 39% of all Deposits . . . $3.8 trillion on the commercial side only and not including the investment side. 2/3rd of the credit card market is control by Citi, BofA, and Chase. Think they need more help?
– Cram Down provisions were removed which would have allowed bankruptcy courts to interfere with the terms of mortgages when in Bankruptcy Court. This lost in the House in a separate vote 241-188. Sure glad we have Dems protecting our butts. God-forbid the mortgage loan sharks have to reduce their take. Again a concession to TBTF.
– Retailers, auto dealers, lawyers, and real estate brokers are exempted from the new consumer agency overview.
– 8000 banks with assets < $10 billion are exempted from examination by the new consumer agency or to paying fees to it. How many of the 132 failed banks today had assets >$10 billion?
– It has little provision for the dismantling of TBTF banks.
While some have proposed a reinstitution of Glass-Steagall, I am not so sure all of it is needed. The dismantling of it came about when Greenspin loosened Section 20 of GS making it possible for banks to put a greater percentage of funds on W$ in an increasing variety of investments. Close the size of the loophole from 100% to 25% and that would slow them down. Perhaps changing the Banking Act to disallow (initially changed to allow Citibank and Travelers to combine) the combination of commercial banks and investment firms would limit exposure also.
Other than Dorgan, I do not believe we have many bold polticians willing to take on big finance and healthcare.
I fear you are correct. The House’s version of financial reform doesn’t go nearly far enough, and even that is subject to intense lobbying. The banks are gloating over their lobbying wins–including review of FASB accounting rules by the banks’ “systemic risk regulator.” As I’ve said in other posts on ataxingmatter, this is like requiring your medical doctor to report to a “good times” supervisor who changes the diagnosis from possibly terminal cancer to mild upset so that no one will be perturbed. It might calm the nerves if you were too ignorant to realize what was going on, but it wouldn’t do anything to prevent the spread of the cancer.
Small businesses needs customers much more than credit. The Tarp needs to be rolled up and discontinued as quickly as possible. The banks have stabilized and you’re not going to goose the economy with monetary policy. Small business would rather have a cut in the payroll tax than the continuation of TARP. I actually don’t want either since I focus more on long term measures then quick fixes with their spotty record of effectiveness. After customers the next thing businesses want are lower costs. You don’t get their by forcing healthcare and new costly environmental regulations on them.
TARP was important but its time has come and gone.
I keep waiting for them to pass the Tar and Feather bill. If only that would happen…
MG:
Nice touch, I would like that one too!
Guest (one time only until you get an ID):
Business has not modernized much over the last decade and this would be one of the few times small businesses could have access to funds to retool or acquire some of the resources not normally available to them cheaply because of the expense of funds in the past and probably into the future.
A future government run healthcare program would be less costly than the private programs available today, unless you choose not to have any what-so-ever. As far as EPA, we are not China which allowed a flood of Benzine to roll down a river for a period of time before warning people not to drink the water. Nor can we continue to make inefficient cars as the cost of oil will go up again after this respite. You also appear to blame Labor for the costs of operations in the US. The Payroll Tax nor they have caused the issues you have today and you need to examine other reasons for high costs. Taking away whatever safety-net is available to them through SS and Medicare by cutting funding is not going to put that much more money in your pocket.